Urban Homestead Zones May Help Revitalize City Centers

Testimony to Ohio House of Representatives Committee on Economic Development and Environment

Chairman Collier, Rep. Wolpert, and members of the House Economic Development and Environment Committee, thank you for giving me this opportunity to provide feedback and thoughts on H.B. 404 and the creation of Urban Homestead Zones.

Major Program Components

Urban Homestead Zones are intended to encourage the revitalization of our inner cities. The zones would be the voluntary creation of property owners in Ohio's largest cities (the "Big 8"—Akron, Canton, Cincinnati, Cleveland, Columbus, Dayton, Toledo, and Youngstown) and cover between 10 and 150 acres.

In order to become an Urban Homestead Zone, the area would have to be considered "blighted."

An area would be considered blighted if the following trends were evident over the last 50-years:

The area experienced a 50 percent decline in population;

Violent crime has increased at least 30 percent; and

Poverty has increased 50 percent.

These zones would be allowed to take two very important independent steps that help encourage revitalization:

Establish a private security force, financed by a special assessment on properties within the zone; and

Establish a legal right to an educational voucher for households that invested in residential renovation (a minimum of $120,000 under current legislation) that can be used to offset tuition at private schools.

Thus, the legislation directly tackles two core issues—personal safety and educational opportunity—that are critical to the revival of our central cities.

Fresh Thinking About Revitalization

HB 404 reflects fresh thinking about urban revitalization and has the potential to give new, important tools to citizens and public officials in our traditional central cities.

I've been working in the area of urban revitalization for 20 years, beginning as a researcher examining the effects of urban enterprise zones as a graduate student at Wright State University. Since then, I have come to realize that a critical factor in revitalizing urban areas is making sure the fundamentals are in place. Two of the most important obstacles to retaining and attracting families in our larger cities are concerns about personal safety and the quality of education.

The concept of an Urban Homestead Zone also reflects a shift in thinking about public policy's role in revitalizing inner-city neighborhoods. Rather than use a more traditional approach emphasizing large-scale projects like sports stadiums, citywide administered community programs, more visible marketing, or simply transferring more resources to existing city governments, the Urban Homestead Zone focuses directly on the needs, aspirations and expectations of citizens and residents (both existing and future).

Revitalization in established urban areas happens on an incremental scale, often through the ongoing and interconnected decisions of individuals and households. Few urban areas or inner city neighborhoods, for example, are revitalized by large scale redevelopment of entire blocks (commercial or residential). On the contrary, revitalization happens parcel by parcel. Urban Homestead Zones recognize this process and provide a mechanism for reinforcing this dynamic.

The Urban Homestead Zone also encourages cities to think at the neighborhood level, at the kinds of personal and physical investments on the parcel level, that provide a foundation for long term, sustainable redevelopment. Central cities already have distinctive neighborhood qualities, and the homestead zones provide a way for these neighborhoods to further tailor public services to their specific needs.

Concerns About Current Legislation

Despite what I think are clear potential benefits of the Urban Homestead Zone concept, the current legislation has several features that may limit its benefits and effectiveness.

The investment threshold may be too high. $120,000 is a very large investment in most of Ohio's urban areas. Homes targeted toward the middle class often sell for between $50,000 and $80,000. The bill, as it currently reads, implies that a family moving into a city (or buying another home in the city) would have to shoulder the burden of the mortgage on the building plus invest $120,000. For a new family, this could mean financing $200,000 or more. Investments on the scale of the current bill, then, really end up targeting high-income households.

I don't think this is necessary, and the benefits of the zone could be expanded dramatically by lowering the threshold. Bringing the investment financial threshold to $50,000 or $75,000 would allow for significant remodeling and investment (bringing many homes to contemporary standards) while providing access to the program for lower middle-income families. Cities need to retain the families they have and minimize the incentives to move outside the city.

The thresholds that qualify an area for zone designation are too high. While the legislation defines blight using specific criteria, and this is very important, the current criteria are sufficiently narrow that few neighborhoods would likely qualify. Moreover, the criteria are keyed into historical trends. In a broader sense, we are more concerned about revitalizing depressed inner city areas than how long it has taken them to become depressed.

Benchmarks such as a percentage of crime, home values, or poverty above or below the city average would be more accurate and consistent with achieving the goals of revitalization. I would also recommend considering regional benchmarks. Central cities compete with suburbs for homes and families, so the appropriate competitive comparison is probably not other neighborhoods within the city, but nearby suburban cities and locations.

A shorter time period for the trends would also be reasonable. Most Ohio cities began losing population in significant numbers around 1970, so a 20-year period would be sufficient to capture the relevant decline.

The nonresidential land use maximum of 15 percent in the zone should be increased. Particularly in the current economy, where more and more professionals are working at home, neighborhoods in dense urban environments can tolerate (and thrive) with higher commercial/residential mixed uses. This is particularly true if the commercial property houses professional and neighborhood services that provide its social infrastructure. These commercial uses contribute to creating and sustaining a neighborhood identity.

School vouchers should not be limited by the General Assembly if they are paid for locally. The current legislation allows the state legislature to establish the total number of school vouchers available. This is consistent with current legislation. But at least part of the funding for the Urban Homestead Zone program will come from a Tax Increment Financing program designed to fund the vouchers (an Education TIF). The legislature should not be able to limit the number of vouchers provide in a zone if the TIF fully funds them. Indeed, the fact that the legislature might limit the number of vouchers will likely dilute the incentives to form a zone (and reinvest in the neighborhood) because politics may limit the number of vouchers available in the future. For the program to be effective, the program must have as much certainty as possible linking benefits to neighborhood revitalization.

The student achievement test mandates on private schools should be dropped. This is a very odd provision. If the concern is that private schools do not perform as well as public schools, that issue should be addressed in education reform legislation not economic revitalization legislation. Currently,

Little or no evidence exists showing that private schools perform more poorly than competing public schools;

Student achievement test mandates will add a significant resource and cost burden onto private schools that participate, reducing their incentives to accept children from these zones and diluting the expected benefit from investing in the zone by individual households; and

The mandate runs the risk of creating a two-track testing program, where most private school students take one set of tests (often more consistent with the curriculum) while the students from the homestead zone take another set.

There are, of course, broader issues about whether the student achievement tests are either effective or valid measures of educational achievement, but that debate is best left in a discussion of education reform.

Overall, I applaud the effort to take a fresh approach to revitalize our inner city neighborhoods.